The Drop In Oil Prices Is A Godsend For China

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The Drop In Oil Prices Is A Godsend For China (Merrill Lynch Wealth Management)

Everyone's been abuzz over China's slowing economy.

"In China, investors are coming to terms with a lower level of economic growth. Government authorities there are balancing the need to maintain growth above 7% a year while managing a credit crunch and a highly levered financial system," writes Ashvin B. Chhabra.

However, there is one bit of good news for the Chinese economy: the decline in oil prices. It is "a boon to oil-importing nations such as China," writes Chhabra.

"Rating agencies have begun to pay more attention to the rising costs of pension benefits, which represent a burden on the municipal bond market," write Cooper J. Howard and Rob Williams. This has several implications for investors.

First, investors should "do their homework" and go through recent financial statements and disclosures. Additionally, if they own more than 10 individual issuers, diversification will help limit the idiosyncratic, individual credit risk, write Howard and Williams.

Investors should also consider municipal bonds that are not affected by pensions, and should also think about outsourcing to professionals — particularly if they don't have "the desire and interest to monitor individual credit conditions."

Back in the day, most investors were nervous about going for emerging markets. EM companies were considered significantly inefficient and not transparent. As a result, the few investors who could get around these "obstacles" would make a killing.

Nowadays, EM companies are well covered by analysts. Many assume that this improved coverage now makes it harder for investors to outperform in EM than in the past.

"But broader evidence suggests otherwise," writes Sammy Suzuki. "[T]he median EM manager has continued to beat their benchmark over one-, three-, and five-year periods. The magnitude of the outperformance over rolling three-year periods suggest that EM is still less efficient than the US market and similarly inefficient versus developed markets excluding the US."

"Things are probably going great in your practice today because investor confidence has been improving. But five or 10 years from now, a new generation of investors could wreck it," writes Gregory Bresiger.

Although asset growth is "booming," many older advisers aren't connecting with the next generation of investors. In fact, broker-dealers have been going out of business every two days since 2007.

The current group of advisers is not being replaced fast enough, and firms need to start developing training programs to attract young advisers. "It's estimated that we'll need 237,000 advisers over the next 10 years to serve new investors," Ron DeCicco, the CEO of Pershing, said.

Big brokerage firms have been pushing more clients into flat-fee assets — and it was paying off until now. Firms including Merrill Lynch Wealth Management and Morgan Stanley were "reporting bigger chunks of revenue from those pools," according to Michael Wursthorn.

However, the momentum appears to be slowing down. Over the last 10 years, these assets have been growing year over year. But this year, "thanks in part to market performance," some firms are reporting flat or lowered flows in this segment.

"[A]s far as significant growth, we probably already saw the biggest chunk of that take place already," said Edward Jones analyst Shannon Stemm.